Slide CHAPTER 31 NOT-FOR-PROFIT ORGANIZATIONS: PUBLIC NPOs

Slide FOCUS OF CHAPTER 31 l Accounting for Public Health Care Organizations l The AICPA’s New HCO Audit & Accounting Guide l Accounting for Public Colleges & Universities

Slide PART I PUBLIC HEALTH CARE ORGANIZATIONS (HCOs)

Slide Public HCOs: The GASB Guidance lFinancial reporting for public HCOs falls under GASB’s jurisdiction. GASB guidance encompasses both: n GASB pronouncements and n AICPA’s 1996 HCO Audit and Accounting Guide (cleared by both FASB and GASB).

Slide Public HCOs: The AICPA’s 1996 HCO Audit Guide lThe AICPA’s 1996 HCO Audit guide: n Applies to both: s Private HCOs and s Public HCOs. n Is to be read in conjunction with the reporting requirements of FAS 117, “Financial Statements of Not-for-Profit Organizations.”

Slide Public HCOs: The AICPA’s 1996 HCO Audit Guide l SAS 117 (para. 3) allows AICPA’s 1996 audit guide to provide more specific accounting guidance than that set forth in FAS 117. l Thus allowable differences exist between the two documents. lFurthermore, slight terminology differences exist in the financial statements between public HCOs and private HCOs.

Slide Public HCOs: An Overview l Measurement focus: Flow of economic resources l Basis of accounting: Accrual basis l Financial reporting: Aggregated basis l Description of outflows: Expenses l Depreciation recorded: Yes l Title of the operating Statement of statement: Operations

Slide Public HCOs: Financial Statements Used l Required Financial Statements--ALL On An AGGREGATED Basis: n A balance sheet. n A statement of operations. n A statement of changes in fund balances. n A statement of cash flows--2 categories of cash flows from financing activities : s Capital and related financing activities. s Noncapital financing activities.

Slide Public HCOs: Balance Sheet--Unique Aspects lCompared to private NPOs (Ch. 30), the major balance sheet differences are: n “Fund Balance” is used instead of “ net assets”-- even though the B/S is presented on an aggregated basis. n The fund balance section may show only 2 categories ( restricted and unrestricted ) rather than 3 categories ( UR, TR, and PR ).

Slide Public HCOs: Operating Statement--Unique Aspects lCompared to private NPOs (Ch. 30) the major OPERATING STATEMENT differences are: n Inflows and outflows for the restricted funds are NOT shown. n Restriction expirations are reported in the revenues section (e.g. as grant revenue)-- NOT in a separate category called “Net Assets Released from Restrictions.”

Slide Public HCOs: Operating Statement--Other Aspects n The statement of operations must include a “performance indicator.” Examples are: s Revenues over expenses. s Revenues & gains over expenses & losses. n The “bottom line” in the statement of operations must be the total increase or decrease in the unrestricted net assets.

Slide Public HCOs: Operating Statement--Unique Aspects l Nonoperating items must be reported separately from operating results : n Extraordinary items, cum. effect of account- ing changes, & discontinued operations. n Net change in fair value of investments. n Equity transfers to/from affiliates. n Unrestricted long-lived asset contributions (and assets released from donor restrictions related to long-lived assets).

Slide Public HCOs: Statement of Changes in Fund Balance (Ch. 30) (Ch. 31) Private NPOs Public HCOs Statement of changes in net assets or fund balance used.. NO YES Explanation: (not needed) (needed) 1. Private NPOs use a statement of activities that shows (a) ALL categories of net assets AND (b) the change in net assets for the period (an all-inclusive approach). 2. Public HCOs use a statement of operations that EXCLUDES the restricted funds. Thus the additional statement is needed (at least for the excluded funds).

Slide Public HCOs: Statement of Changes in Fund Balance--A Item of Duplicity lThe change in the UNRESTRICTED FUND BALANCE for the period is shown in BOTH : n The statement of operations AND n The statement of changes in fund balance. lHowever, the unrestricted fund balance at the BEGINNING and the END of the period is shown ONLY in: n The statement of changes in fund balance.

Slide Public HCOs: Receipt of Restricted Contributions l Receipt of Restricted Contributions (both temporary and permanent) : n When RECEIVED, report as increases in the restricted column(s) of the statement of changes in fund balances. s Do NOT report in the statement of operations when they are received. s Report in the statement of operations LATER when TR restrictions expire.

Slide Public HCOs: Expirations of Restrictions lAs restrictions expire on temporary restrictions, they are reported as: n D ECREASES in the restricted column of the statement of changes in fund balances AND n INCREASES in the revenues section of the statement of operations by their nature. lThe caption “net assets released from restrictions” is NOT used by public HCOs.

Slide Public HCOs: Bad Debts and Contractual Adjustments l Bad Debts: n Must be reported as EXPENSES in the statement of revenues and expenses. s Cannot be reported as an adjustment to patient service revenues. l Contractual Adjustments (such as discounts given to third-party payers): n Must be reported as an adjustment to PATIENT SERVICE REVENUES (netted).

Slide Public HCOs: Charity Care l Charity Care: Health care that is provided free--NOT expected to result in cash inflows. n Nonrecognition: The value of charity care is NOT recognized in the financial statements as receivables or revenues (because no cash inflow is expected). n Disclosures required: s HCO’s policy for providing charity care. s L evel of charity care provided.

Slide Public HCOs: Investments-- Summary of GAS 31 lValue investments at their FAIR VALUE. n Exception: Most money market investments with a maturity of one year or less at time of purchase may be valued at amortized cost. lReport ALL investment income (includes mar- ket adjustments) in the operating statement. n Make no distinction between realized and unrealized gains and losses in presenting the “net change in fair value of investments.”

Slide Public HCOs: Investments-- Summary of GAS 31 lInvestments in equity securities to which GAS 31 does NOT apply: n Equity securities not having a readily determinable fair value. n Equity securities accounted for under the equity method of accounting.

Slide PART II PUBLIC COLLEGES AND UNIVERSITIES (C&Us)

Slide Public C&Us: The GASB Guidance (GAS 35) lMust follow one of the two sets of guidance for “special purpose governments” that are set forth in GAS 34. Guidance for when: n Guidance Set #1: Engaged only in business-type activities ( almost all private C&Us will use this guidance). n Guidance Set #2: Engaged only in governmental activities or engaged in both governmental activities and business-type activities ( few private C&Us will use this guidance).

Slide Public C&Us: The GASB Guidance (GAS 35) l Guidance Set #1: Engaged only in business- type activities. Must present: n Management’s Discussion and Analysis ( MDA ). n Financial statements required for Enterprise Funds. n Required Supplementary Information ( RSI ), if applicable.

Slide Public C&Us: The GASB Guidance (GAS 35) l Guidance Set #1: Engaged only in business- type activities. Enterprise Funds: n Use accrual basis. n Report depreciation expense in operating statement. n Use the all-inclusive format in the operating statement (the entire change in net assets for the period).

Slide Public C&Us: The GASB Guidance (GAS 35) l Guidance Set #1: Engaged only in business- type activities. Operating statement categories: n Revenues. n Expenses. n Nonoperating revenues and expenses n Specified items

Slide Public C&Us: The GASB Guidance (GAS 35) l Guidance Set #1: Engaged only in business- type activities. Nonoperating revenues and expenses include: n Noncapital appropriations n Noncapital gifts. n Investment income n Interest expense on capital asset-related debt. n Other nonoperating revenues.

Slide Public C&Us: The GASB Guidance (GAS 35) l Guidance Set #1: Engaged only in business- type activities. Specified items include: n Capital appropriations. n Capital grants. n Capital gifts. n Additions to permanent endowments.

Slide Public C&Us: The GASB Guidance (GAS 35) l Guidance Set #2: Engaged only in governmental activities or engaged in both governmental activities and business-type activities. Must report: lIn the same manner as state and local governments. Thus must present both: n Fund-based financial statements. n Government-wide financial statements.

Slide Public C&Us: Investments lThe two slides that discuss GAS 31 that are at the end of PART I (slides 19 and 20) apply to C&Us as well as to HCOs.

Slide End of Chapter 31 l Time to Clear Things Up-- Any Questions?